UK expands oversight of BNPL, raising bar for providers

Buy now, pay later lending entered a new era in the United Kingdom on July 15, 2026, as long-awaited regulations brought most third-party deferred payment credit products under the supervision of the Financial Conduct Authority.

The rules require lenders to conduct affordability checks before extending credit, provide clearer information about repayment terms, support borrowers experiencing financial difficulty, and give eligible consumers access to the Financial Ombudsman Service and Section 75 purchase protections for qualifying transactions.

The changes apply to new agreements arranged through third-party lenders, while merchant-provided deferred payment credit and agreements entered into before July 15 remain outside the new regime.

Industry welcomes stronger oversight

Industry reaction has been broadly supportive, although many payments executives believe the regulations represent the beginning rather than the end of the UK's BNPL oversight.

"BNPL coming under FCA regulation from 15 July has been a long time coming," Radi El Haj, CEO of RS2, said in a statement. "There's a genuine upside here too. Section 75-style protections and access to the Ombudsman should build real trust in a product that's had a bit of an image problem, which in turn should grow the market for the lenders doing this properly."

Santosh "San" Nakra-Shah, co-founder and managing partner of ChilliMint Europe Ltd., likewise described the changes as overdue. "From today, Buy Now Pay Later finally has to play by the same rules as the rest of the credit industry," Nakra-Shah said. "The affordability checks introduced in the new FCA rules go a long way to making repayment terms clearer, and afford stronger protections for the UK's estimated 11 million BNPL users."

Checkout experience comes into focus

While the new framework strengthens consumer protections, several executives cautioned that implementation will determine whether regulation improves or complicates the checkout experience.

"Affordability checks can't be a separate step tacked onto checkout — that's where lenders will lose customers," El Haj said. "They need to happen instantly, as part of the transaction itself, using the same real-time data lenders already rely on for fraud checks. Do that well and the customer barely notices. Do it badly and they abandon the basket."

Drawing parallels with the rollout of PSD2's Strong Customer Authentication requirements, El Haj added that providers treating compliance as a design challenge rather than "a box-ticking exercise" are likely to emerge with stronger customer experiences.

Others questioned whether the rules create an uneven competitive landscape. Scott Dawson, CEO of DECTA, said the distinction between third-party BNPL providers and merchants offering financing directly could leave consumers confused about their rights.

"Whether a shopper gets the new affordability checks, access to the Financial Ombudsman and potentially Section 75 protection depends on two things they cannot possibly see at the checkout," Dawson said. "That's a strange place to land for a regime built on transparency."

He argued that while disclosure requirements, support for borrowers in arrears and redress mechanisms are "long overdue," the government should revisit exemptions for merchant-provided deferred payment credit because "consumer risk doesn't change according to the corporate structure sitting behind the credit."

Infrastructure faces new demands

The changes also carry significant operational implications for payment processors and acquirers. "Most of the debate about the FCA's new Buy Now, Pay Later rules has focused, understandably, on the consumer," Robert Kraal, co-founder of Silverflow, said. "Less has been said about the infrastructure that has to process each payment, and that is where the real work begins."

According to Kraal, acquirers and processors must now distinguish regulated from unregulated deferred payment credit transactions, account for new refund obligations, and support expanded reporting and dispute requirements.

"Good regulation deserves infrastructure that can actually deliver it," he said. "The firms that treat data richness and real-time reporting as core capabilities rather than after-thoughts will absorb these changes with far less friction."

Part of broader payments reform

The new rules also arrive as policymakers consider broader modernization of the UK's payments framework. "The Payments Association welcomes the broader Mansion House 2026 financial reforms package," Emma Banymandub, CEO of The Payments Association, said in a statement. "Payments underpin almost every part of the economy, yet the technology is evolving far faster than the legislation that currently governs it."

She added that the government's review provides "an opportunity to ensure the UK's regulatory framework keeps pace with developments ranging from Open Banking to emerging agentic AI payments."

Even supporters acknowledge the regulations could have unintended consequences. Nakra-Shah pointed to estimates from Fair4All Finance suggesting stricter affordability checks could exclude 10 percent to 30 percent of current BNPL users.

"Demand for short-term credit won't disappear when BNPL becomes harder to access," he said. "Are we solving the problem, or just moving it somewhere less visible? As the market evolves, are we paying enough attention to the consumers who may end up caught in the middle?"

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